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How to Finance Investment Property – Four Options That Can Work For You

February 15, 2010

When it comes to building wealth, the best and most stable option is through investment property.

An investment property is a property acquired for the express purpose of earning a return, either through rent or capital gain. Generally, the owner does not live on the property, although in many cases beginning investors might choose to live in an acquired property while completing renovations, and then sell the home for a profit.

For those looking at getting into investment properties, there are a number of different things to understand before purchasing, with the first thing being how to finance investment property.There are four common financing methods you can use to invest in real estate, with the first being to organize a home loan through your favorite bank.

Loans acquired through a bank offer many advantages such as competitive interest rates and low fees, although banks might not approve a high loan to value property.

What it boils down to is that typical banks will expect you to come up with 30% of the rest of the money.

This may be a problem for you, or it may not; it depends on if you have the cash to place towards the property investment.Going through an accredited mortgage broker is another popular choice. Mortgage brokers are trained to know how to effectively finance investment property and have thorough experience in doing so.

Their job is to present the loan you want to different lending institutions, and find the one that offers the best interest rate. An advantage to this service is that rather than being denied by one bank and having to start all over again with a different one, the broker does the work of presenting your loan to different institutions until he or she finds one that will accept it.

There are options other than banks and lending institutions. You can also go through private lenders, who loan their private money to projects of their choosing. The fees and interest rates of private lenders are usually much higher than those of banks and other lending institutions; this means that you will have to decide if the profit you stand to make from the property is worth the additional fees. You also have the option of financing an investment property with your own money.

If in fact you have the capital to do this, this is going to be the easiest and fastest financing method.

Of course by using your own financing, you are not building your credit score by obtaining financing and then retiring the loan through repayment.

How to finance investment property is going to depend entirely on your financial situation and the goals you have for investing in real estate.